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					                                                             The
                                                             Flynn
                                                             Report
                                                                    April 28, 2006

Greetings constituents, supporters and friends:

The Texas Legislature began Governor Rick Perry’s call for a Special Session on
Monday, April 17, to answer the Texas Supreme Courts ruling that Texas' current
property tax system is unconstitutional and must be reformed by June 1, 2006.

Under the Texas Constitution the legislature can only hear and work on legislation
that fits within the call of the Governor. The items in the call include property tax
reduction, the development of a business margin tax and the elimination of the
current franchise tax, increasing taxes on cigarettes and other tobacco products, a
tax on motor vehicle sales which also includes a tax on the difference between a
book and sales price on a used automobile, and appropriations of funds to the
Texas Education Agency.

It is important to understand what is not in the call and what could happen if the
Legislature is successful in meeting the items in the call in a timely fashion. If that
is accomplished Governor Perry has committed to opening the call to other
important educational issues, once we have satisfied the Supreme Court's
requirements. Those other items could include additional funds to our state's
schools, to reform public education, or to offer pay raises to teachers and public
school employees as well as items already spent on hurricane relief funding,
additional appropriations needed to approve textbooks funding, Medicare
expenditures, and Nursing Home funding.

Texas property owners have been shouldering the tax burden for far too long and
relief must be forthcoming. The tax reform plan that was put before the
Legislature appears to be a fair, low-rate and broad-based alternative tax plan.
Many have requested a plan that does not single out a specific industry and closes
loopholes that have given some an unfair advantage allowing them to avoid paying
their fair share.
House Bill 1, buys down property taxes $0.17 in the first year and will go into effect
this year. It uses $2.4 billion in state surplus funds to accomplish this. Since this bill
will go into effect this year and by itself it meets the requirements of the Texas Supreme
Court's order to lower the state's reliance on local property taxes to fund public schools.
With the passage of this bill and meeting the minimum requirements set by the Supreme
Court and fixing the unconstitutional property tax system it will make for a successful
special session.

The SFtate will use $2.4 billion to offset the districts’ loss of 17 cents of local tax
revenue. Several amendments passed that addressed concerns from advocates for poorer
school districts as well as senior citizens and the disabled. One amendment ensured that
the 17 cents of discretionary revenue available to districts are subject to Robin Hood.
There was also one that would use formula funding to drive the education system as a
whole toward greater equity and an amendment that extended property tax relief to
senior citizens and the disabled who have had their property taxes frozen. House Bill 1
passed the House by an overwhelming margin of 139-5.


House Bill 2 dedicates all the revenue raised in the bill to school district property tax
relief. It also dedicates all the revenue raised in HB’s 1, 3, 4, and 5 to property tax
relief. House Bill 2 dedicates all the revenue raised in the bills passed by the House to
school district property tax relief. It creates a Property Tax Relief Fund a tax relief “lock
box” outside of the general revenue fund. Revenues generated by changes in franchise,
cigarette and sales taxes on used motor vehicles must go into the Property Tax Relief
Fund, which can only be appropriated to cut school property tax rates.

House Bill 3 revises the franchise tax provisions to ensure that each business that is
subject to the tax pays its fair share of education costs. Under the new plan the primary
franchise tax rate will be lowered from 4.5 percent to 1 percent. This will bring an
estimated $3.8 billion to the state from the numerous businesses that currently avoid
paying the franchise tax by taking advantage of loopholes. House Bill 3 revises the
franchise tax provisions closes the franchise tax loopholes with a broad low rate of 1%
or less. Retail and wholesale firms will pay a 0.5% rate. It is the primary source of
funds used to buy down property tax rates. It will generate over $3 billion annually and
is the primary source to provide ongoing property tax relief. The bill was amended
several times before it was finally passed. One important amendment adopted was
important to companies that rent cars, construction equipment and rail cars. It allowed
these entities to subtract, as costs of goods sold, the depreciation in value of the items
rented.

House Bill 4 tightens the language and the requirements for the sale of used motor
vehicles to replace the document that was previously call the “liar’s affidavit. The state
will receive the proper amount of revenue from these transactions. The bill attempts to
tighten the language and the requirements for the sale of used motor vehicles. It requires
sellers to reveal and pay tax on the true sale amount of a vehicle.

House Bill 5 increases the tax on the sale of tobacco products to raise additional
revenue for property tax relief. Raising the tax to $1 could bring an estimated $623
million to the state in 2007. Once passed, House Bill 5 will raise the cigarette tax by $1.
All revenue generated from the tax will be dedicated to property tax relief.

Using the surplus alone for property tax reductions would have been a mistake. By
using the combination of the budget surplus and tax reforms, our tax relief will grow
over time. Using the entire unknown projected surplus would have been unwise and
fiscally irresponsible.

Texas taxpayers deserve this true tax relief that is provided for in this plan. By
dedicating portions of the “surplus” to lowering property taxes and using only a portion
of the surplus at this time it actually reduces the tax burden making Texas an even more
attractive place to live, raise our families and to invest. When the actual amount of the
“surplus” is known it will allow lawmakers to prudently use even more of the surplus
for future property tax relief. It is important to dedicate to property tax relief all
revenues from new and increased taxes developed during this special session.

This attempt by the House reflects the Legislatures dedication to bringing down
property taxes and providing for the "meaningful discretion" required by the Supreme
Court ruling so that local school districts do have a say in the decisions about how their
districts are taxed. I believe this effort goes a long way towards reassuring taxpayers
that the Texas Legislature is more interested in protecting the taxpayers and providing a
healthy economy, than in growing big government.

This tax bill, like any other legislation, can possibly be improved, but most believe it is
a sound framework for more efficient, equitable and constitutional, taxation. At the
same time, it gives the hard working taxpayers much welcomed tax relief and meets the
requirements of the Texas Supreme Court. This plan creates the largest property tax cut
in Texas history with more than $6 billion in relief.

A key provision of this reformed franchise tax bill includes taxpayer protections and
business incentives. Any future increase in the business tax rate will require a
statewide referendum approved by the majority of registered voters in Texas. By
requiring voter approval, businesses are less likely to see frequent tax hikes creating a
stable economy for the future. In addition, small businesses that have gross receipts of
less than $300,000 or a total tax liability of $1,000 or less will be completely exempt
under the reformed business tax. As an incentive, the more an employer spends on
paychecks, healthcare and pensions the less taxes they will pay.

Since businesses will not make their first payment under the reformed plan until May of
2008, the Legislature will have the opportunity to study any concerns during the interim
and address any unintentional consequences during the 80th Legislative session
beginning January 2008.
My staff and I welcome your input and questions. You can reach us in our offices
located in Austin at the State Capitol in the capitol extension: E1.324. The Canton
District office located in The American National Bank Building on Highway 243:
The Greenville District office is located in The Paul Mathews Exchange Building,
Suite 802, 2500 Stonewall Ave. Phone: 1-800-734-9515 Mailing address: P. O. Box
2910, Austin, TX 78768. Email District2.Flynn@house.state.tx.us

God bless you and God bless Texas,


Dan Flynn
State Representative, District – 2

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